Enbridge (TSX:ENB) is one of the largest companies on the TSX, with market capitalizations above $100 billion. The share price of the energy infrastructure giant is off the 2023 lows, and investors who missed the fourth-quarter (Q4) bounce are wondering if ENB stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Enbridge overview
Enbridge (TSX:ENB) operates an extensive network of oil and natural gas transmission systems that arguably serve important roles in the smooth functioning of the Canadian and U.S. economies. The company moves 30% of the oil produced in the two countries and 20% of the natural gas used in the United States. The recently announced plan to buy three U.S. natural gas distribution utilities will make Enbridge the largest natural gas utility firm in North America, with businesses providing the fuel to millions of commercial and residential customers in the United States and Canada.
In the past few years, Enbridge has also positioned itself to benefit from other energy trends. The company spent US$3 billion to buy an oil export terminal in Texas in 2021, and last year, it secured an interest in a new liquefied natural gas (LNG) export facility being constructed on the coast of British Columbia. In addition, Enbridge bought a solar and wind project developer in 2022 to drive growth in its renewables division.
ENB stock
ENB stock is down about 10% in 2023 compared to a gain of about 8% for the TSX Composite Index.
The decline looks overdone, considering the steady performance of the business this year. Enbridge is on track to meet its financial guidance for 2023 and expects to deliver solid results in 2024. The existing businesses should deliver distributable cash flow (DCF) growth of about 3% and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 4%. This doesn’t include the potential gains from acquisitions that are expected to close next year.
Dividends
Enbridge raised the dividend by 3.1% for 2024. That marks the 29th consecutive annual dividend increase from the energy infrastructure giant. Investors who buy the stock at the current level can get a 7.6% dividend yield.
Is Enbridge undervalued?
The stock’s decline is largely due to the rise in interest rates this year. Higher borrowing costs drive up debt expenses, and that can reduce net profits, but the market reaction appears overdone. The Bank of Canada and the U.S. Federal Reserve are expected to begin cutting rates in 2024. If that happens, there could be a rush of money back into ENB and other high-yield dividend stocks that took a hit this year.
Near-term volatility should be expected, but if you have some cash to put to work, Enbridge looks cheap right now and deserves to be on your radar.
